In the wake of its fraudulent account scandal, Wells Fargo announced in April 2017 that it would claw back additional compensation from former CEO John Stumpf and former head of community banking Carrie Tolstedt. All told, the total amount of clawed back compensation at Wells Fargo has now reached $180 million.
However, such clawbacks remain the exception rather than the norm. Unlike most financial firms, Wells Fargo has a particularly powerful clawback policy on its books. Furthermore, the Wells Fargo clawbacks only occurred almost three years after the Board of Directors became aware of the malfeasance, and only in response to intense shareholder pressure against the Board of Directors.
As John Coffee and others have pointed out, extreme incentive compensation has led to many of the financial industry scandals that we have seen in recent years. Even the possibility of clawbacks does not seem to be changing the corporate culture in large financial institutions. As a result, it may be time to reconsider a stronger alternative to clawbacks: more widespread use of deferred compensation. Continue reading